Good morning. My name is Cassandra, and I will be your conference operator today. At this time I’d like to welcome everyone to the Aspen Insurance Holdings Fourth Quarter 2011 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. (Operator Instructions) Thank you.

And now I’d like to turn the call over to Kerry Calaiaro, you may begin.

Kerry Calaiaro

Thank you and good morning. The presenters on today’s call are Chris O’Kane, Chief Executive Officer; and Richard Houghton, Chief Financial Officer of Aspen Insurance Holdings. Before we get underway I’d like to make the following remarks, last night we issued our press release announcing Aspen’s financial results for the quarter and year ended December 31, 2011. This press release as well as corresponding supplementary financial information and the short slide presentation can be found on our website at www.aspen.co.

This presentation contains and Aspen may make from time-to-time written or oral forward-looking statements within the meaning under and pursuant to the Safe Harbor provisions of the U.S. Federal Securities laws. All forward-looking statements will have a number of assumptions concerning future events that are subject to a number of uncertainties and other factors, for more detailed description of these uncertainties, and other factors please see the risks factor section in Aspen’s Annual Report on Form-10K filed with the SEC and on our website. This presentation contains non-GAAP financial measures which we believe are meaningful in evaluating the company’s performance. For detailed disclosure of non-GAAP financials please refer to the supplementary financial data and our earnings slide presentation posted on the Aspen website.

I’ll now turn the call over to Chris O’Kane.

Chris O’Kane

Thanks Kerry. Good morning everyone. A significant combination of catastrophe events and depressed investment returns makes 2011 one of the tougher years the insurance industry have seen for some time.

Many will look back November the year as one of the worst years of catastrophe related losses in history. Companies around the globe take series of natural disasters including an earthquake and tsunami in Japan, earthquakes in New Zealand, cyclone and flooding in Australia, a hurricane and the series of severe tornadoes in United States, and devastating floods in Thailand.

Industry-wide losses in 2011 totaled $508 billion which is more than double the figure of $48 billion in 2010 and second only to the record of $123 billion in 2005 when the three U.S. hurricanes; Katrina, Rita and Wilma alone cost the insurance industry over $100 billion.

So, these conditions impacted our financial results for the year. We continue to execute our strategy and adjusted our practice as required to protect our balance sheet, create shareholder value and position our business for future growth.

Aspen has a track record prudent underwriting growth and extensive experience and our own perspective on exposures using both internal and external risk models. This creates clear review of the risk landscape which we carefully evaluate before making underwriting decisions. As we have discussed before, experience and sound judgment mattered just as much as our models. We also use market share data to evaluate the amount of risk we’re willing to take in any given full reserve.

Now, for the global economy in the past 15 years or so, the drive to lower cost of industrial reduction has led to new clusters of significant value building up especially in Asia, and sometimes in locations heavily exposed to natural perils. We believe that many insurers have not realistically affect the level of exposure and the range of perils that could potentially impact these new industrial parks.

As a consequence, data standards can be poor and premiums charge inadequate and therefore we seek to minimize our exposures in those areas. An example of this is the recent loss experienced in Thailand. Regarding our Thailand loss, net of reinsurance, reinstating premiums and tax, our estimate is $54 million.

Our exposure derives from seven Asian region treaties, eight Japanese (inaudible) with international exposure, three multinational insurers, and one Thai contract. You might like to refer to Slide 11 for a breakdown of our 2011 catastrophe losses on both gross and net basis.

Now, let me review our performance. I’m pleased to report that despite the tough environment, we had a breakeven result for the fourth quarter and a very good performance indeed in our insurance business. We reported operating income of $6 million, or $0.01 per share for this quarter, and Richard will give you more detail of those in few minutes.

For the full-year 2011, we reported an operating loss of $1.26 per share, diluted book value per share was $38.43 per share, down 1.2% from year-end 2010. Our insurance segment had a very strong year, with underwriting profit of $33 million. This reflected not only significant growth in certain niche areas but also an improvement across a number of lines. Our casualty and specialty reinsurance lines also had good performances, although the reinsurance segment was materially impacted by the high frequency and severity of natural cats in 2011.

Now, let’s take a look at our underwriting performance beginning with insurance. In the insurance segment, we reported, as already mentioned, an underwriting profit (inaudible) for full-year and the combined ratio of 95.8% compared to 103.1% for 2010. Gross written premiums rose 12% from last year, reflecting among other things strong demand for our kidnap and ransom offering and the successful progress of our U.S. professional lines of business.

We look at our insurance business geographically as well as by segment and would like to make a few comments on our international and our U.S. based team performances. For the full-year 2011, the teams within our international insurance lines delivered gross written premiums of $775 million. They produced a strong loss ratio of 59.6% for the year compared with 69.6 in 2010, with particularly good performance in marine, aviation, financial institutions, political violence and credit risk.

Our U.S. based insurance teams achieved gross written premiums of $246 million. The loss ratio for U.S. insurance for the full-year was 65.7% compared with 90.6% a year ago. There has been a significant transformation in the U.S. during 2011. We had a new surety underwriting team in May 2011, and by December we had all the required regulatory consents in place and we were fully operational. We also expanded our programs both for the major new contract for a very successful New York-based MGA, which was bound in September 2011 and which we expect to develop annual gross written premiums around $100 million on fully seasoned.

The environmental and then primary casualty, we upgraded our talent and strengthened our underwriting capabilities. We also continued to build up management expertise and infrastructure to support growth and development.

Now turning to reinsurance, we reported an underwriting loss in this segment of $283 million for full-year and a combined ratio of 125.4% including 47.5 points from catastrophe losses. In our property reinsurance lines, gross written premiums were 586 million, a modest increase of 4% from 2010, other $28 million of this growth was due to reinstatement premiums and other loss adjusted plus related adjustments.

You can therefore reduce that on a like-for-like basis, written premiums were basically flat. Although we benefited from positive price momentum in certain U.S. cat exposed property classes, we also eliminated some U.S. exposures during the course of the year, the consequence of adopting RMS version 11 and we also proven back some of our international exposures as a result of lessons being learned from the series of non-U.S. catastrophe losses.

In casualty reinsurance, we delivered very respectable results in a difficult market and continue to manage through the cycle by exhibiting rigorous price discipline, managing (inaudible) core volatility and also by reducing our exposure overall to those lines of business, which are more exposed to the financial crisis and the economic recession.

Casualty premiums declined 9% and excluding premium adjustments this represented a 15% reduction from prior year. In specialty reinsurance, gross written premiums for 2011 was $292 million, up 13% from a year ago. This reflects the growth in our credit and surety book while pricing has generally been favorable. Our contingency, aviation, and states reinsurance accounts performed very well in 2011 and delivered loss ratio of 53.2% for the year. Credit and surety also performed very well, delivering a loss ratio of 48.1%.

I’ll now comment briefly on market conditions. U.S. property catastrophe rates rose 10 to 15% in ‘11 while Europe remained flat to up 5%. Looking forward to the Japan April renewals, we anticipate these rates should rest significantly on the back of the Japan earthquake and Japanese seasoned related loss activity in Thailand. There is a great deal of speculation in the scientific risk concerning the risk of earthquake in the Tokyo Bay area has increased close to Aku, as a consequence of the so-called Coulomb Stress Transfer Theory.

We are at least persuaded that the results and uncertainty alone demands a higher price, and therefore, we will be preparing for rate increases for Japanese earthquake business up to 100%. Casualty rates remain flat, and premium rates and specialty reinsurance are stable, although we have achieved price increases of at least 25% in the loss affected marine and offshore energy markets. In the insurance markets, international terms and conditions remain stable and the insurance marketplace is extremely reluctant for bad multiyear policies at this point. We regard this as very significant, because at this stage in the cycle, many buyers would like to have multiyear policies locked in at reasonably weak rates, we therefore encourage the underwriting market is saying no to this.

Looking forward to the mid-year U.S. property renewals, we estimate we could see double-digit price increases and adoption of RMS version 11 becomes increasingly incorporated into pricing models. For casualty renewals, the market conditions do remain challenging, in UK liability, but we did experience significant price increases, 13% on our global excess casualty accounts.

In aviation, only a small proportion of our book renews in January, and while the overall marketed airline sector remains over-served by competition, we’re confident that our own unique approach will continue to yield good profits.

Finally, I’d like to comment briefly on the Costa Concordia cruise liner incident, which took place off the coast of Italy in January. The loss is a complex one and there are various factors and uncertainties which will have an impact on the final quantum of the loss.

We have exposure in both our insurance and reinsurance segments, mainly arising from our marine hull and marine liability insurance accounts. We expect that our loss from our insurance business will be contained within our reinsurance program and retained loss will therefore be less than $30 million before reinstated premiums.

In the reinsurance segment, our exposure arises mainly from the specialty reinsurance area, and our losses here are expected to be less than 1% of the market loss. Let me stress here and let’s be absolutely clear, that although in early stage, these figures of $30 million and 1% represent our current view of likely worst case. The actual loss could well be much less.

With that, I’m going to turn the call over to Richard to review the results of the quarter in more detail.

Richard Houghton

Thank you, Chris, and good morning, everybody. Net income after tax for the fourth quarter was $14 million compared with 93 million for 2010, and operating income was $6 million compared with 76 million from the same period in 2010. The quarter’s results included $102 million of catastrophe related losses, with 54 million from the Thai floods and 48 million aggregate increases from events from the first nine months of 2011. This is primarily due to a $36 million increase in our estimate for the Tohoku earthquake as a result of new information in respect of a Japanese mutual. Aspen is now assuming a total loss from its exposure to this event.

Despite the difficult operating environment, we broke even for the fourth quarter, with operating income of $6 million or $0.01 per diluted ordinary share. Unrealized gains increased book value by an analyzed 1.6% in the quarter, with an equivalent contribution from net income.

Including accumulated dividends of $0.15 per share, diluted book value per share grew by an annualized 3.2% in the quarter. Annualized operating return on equity was zero, compared with 10.8% in 2010. Catastrophe losses accounted for $1.39 per share in the fourth quarter compared with $0.40 per share in the fourth quarter of 2010.

The combined ratio for the quarter was 114.1% compared with 95.3% for the same period last year. The ex-cat combined ratio for the quarter was 89.2% versus 88.3% in the prior year period. Prior-year reserve releases in the fourth quarter of 2011 were $22 million, with 15 million from reinsurance and 7 million from insurance. In the comparable quarter last year, there were reserve releases of $13 million.

Our expense ratio for the fourth quarter of 2011 was 33.5% compared with 33.8% for the same period in 2010. Our fourth quarter operating expense ratio of 16% was up marginally from the prior year, due to our ongoing investments in insurance infrastructure and future growth opportunities, particularly in the U.S.

For the full-year, we reported an operating loss of $66 million or $1.26 per ordinary share. Diluted book value per share declined 1.2%, to $38.43. Unrealized gains increased book value by 3.7% in the year, offset by a 3.7% charge from net losses after-tax. Including accumulated dividends of $0.60 per share during the year, diluted book value per share grew by 0.3%.

Operating return on equity was minus 3.7% in 2011 compared with a positive 9.1% in 2010. Catastrophe losses accounted for $6.88 loss per share in 2011 compared with $1.88 per share in 2010. For the full-year 2011, we had reserve releases of $92 million compared with 22 million in 2010.

I’ll now comment in further detail, on our segment results, starting with insurance. Our insurance segment generated an underwriting profit of $13 million for the quarter with a combined ratio of 93.4%, a significant improvement from an underwriting loss of $18 million, and a combined ratio of 108.8% for the comparable period in 2010. The loss ratio for the segment was strong, at 58%, compared with 77.4% last year with the improvement coming from several lines.

The results including 7 point improvement in our accident year loss ratio to 62.5% from 69.7%, and 5 points of reserve releases. In our property lines, gross written premiums were $220 million, an increase of 28% from 2010. We benefited from pricing momentum in certain cat-exposed property classes, which helped U.S. property deliver an excellent result, with a 46.9% loss ratio and results also included our newly expanded program book, as Chris has already mentioned.

Our UK commercial property once again delivered a strong result, with a 52.8% loss ratio, despite very competitive market conditions. In casualty insurance, gross written premiums were 137 million, down 7% from a year ago, as we managed down our exposures in the soft markets. In the UK, employee’s liability and public liability market, conditions remained challenging and rates were down 8% for these products.

In the U.S., pricing remains inadequate in some lines, but there are early signs that the market is changing and prices are increasing modestly. Global casualty is seeing some rate improvements, particularly among pharmaceuticals and chemicals. Marine, energy and transportation had a very good result in 2011, with a loss ratio of 53.5%, and gross written premiums of $432 million.

We are in this area, our marine, energy and construction liability accounts saw good premium growth and an improved rate environment, achieving, for example, average rate increases of 14% in the fourth quarter of the year. Aviation had an excellent performance for the 37.5% loss ratio for the year, achieved by continuing our highly selected airline risk profile and concentrating on our key niche products. We are particularly pleased by this result, as pricing in the aviation market remains challenging throughout 2011.

In financial and professional lines, gross-written premiums were $230 million, up 44% from 2010, with all of this growth occurring in the kidnap and ransom and U.S. professional lines, as Chris mentioned earlier. We maintained our conservative stance in financial institutions, given the volatility and uncertainty in the global economy. The size of this business is very modest compared to our whole portfolio, and we have scaled back what we expect to write in this area in 2012, given the euro zone uncertainty.

Turning now to our reinsurance results, reinsurance reported an underwriting loss of $69.4 million for the quarter, compared with underwriting profit of $53.7 million in the fourth quarter of 2010. The combined ratio for the reinsurance segment was 124%, including 42.7 percentage points of cat losses for the quarter. This compares to a combined ratio of 81.6% in the fourth quarter of 2010, which included 12.1 percentage points of cat losses. Excluding the impact of cats, the combined ratio is 81.3% compared with 69.5% in 2010.

The majority of this increase is attributable to a reduction in reserve releases from 36 million in the fourth quarter of 2010 to 15 million in 2011. The fourth quarter’s reserve releases were principally from property and specialty lines. For the year ended December 31, 2011, the combined ratio for the reinsurance segment was 125.4%, with an ex-cat combined ratio of 77.9% compared to a 73.2% in 2010. The accident year ex-cat combined ratio of 86% for the full-year 2011 compared to an accident year ex-cat combined ratio of 79.4% for the same period in 2010.

One point of note in the financial results for the quarter and the year is our tax position. We had a tax credit in the fourth quarter of $24 million and for the full-year of $37 million. This credit was a result of the geographic distribution of losses, as well as a decrease in the UK corporate tax rate and favorable prior year adjustments. Going forward, we expect our underlying tax rates to remain in the range of 8 to 12%.

Now, turning to our investment performance, you may wish to refer to pages 7 to 10 in the slide pack for additional information. Net investment income in the quarter was $54.2 million, compared with 57 million in the fourth quarter of 2010. Dividend income from our recent $175 million investment in an equity income portfolio of quality stocks with a low aggregate beta has provided an incremental contribution in the prevailing difficult investment conditions.

As a result of a prolonged low interest rate environment, reinvestment rates currently stand at about 1%. I would estimate our quarterly investment income run rate in 2012 will be slightly less than the fourth quarter of 2011 at approximately $50 million.

Net realized and unrealized investment losses included a net income for the quarter was $6 million, which includes 3 million of value adjustments from the company’s interest rate swap program. This compares with 19.7 million of net realized and unrealized gains in the fourth quarter of 2010, which included 9.2 million of gains from the company’s interest rate swaps.

Unrealized gains in the available for sale investment portfolio including equity securities at the end of fourth quarter 2011 were $335.8 million, an increase of $96.3 million pre-tax from prior years or 40%, primarily due to persistent low interest rates. We have no other than temporary impairment charges in the quarter or for the year.

Book yield on the fixed income portfolio at December 31, 2011 of 3.37% was down 17 basis points when compared to the third quarter and down from 3.7% at the end of the fourth quarter of 2010. The average credit quality of the portfolio is AA.

Our exposure to Euro zone fixed income securities is $277 million, as of January 31, 2012, and there is more detail on these positions on Slide 10. As of year-end 2011, the total investment portfolio has an average duration of 2.9 years, excluding the impact of interest rate swaps and 2.21 years including the impact of these swaps.

Turning now to our capital position. Our balance sheet remains robust, with $9.5 billion in total assets and $3.2 billion of total shareholders’ equity. We remain comfortably capitalized, with expectations of being able to deploy our capital in hardening market conditions. Last week, our Board of Directors approved an extension of the outstanding 192 million current share repurchase authorization, which would have expired in March 2012.

As we have said and previously demonstrated, we will continue to deploy our capital in developing our business, where our return thresholds can be met. Otherwise, we will return capital to our shareholders.

In the fourth quarter, A.M. Best affirmed the ratings across our other operating subsidiaries at “A” “Excellent”. In addition, Standard & Poor’s and Moody’s also affirmed their rating of “A” and “A2,” respectively.

We have $4.5 billion of gross loss reserves on our balance sheet, an increase of just over $700 million since year-end 2010. This includes a margin of approximately $400 million over our mean best estimate assessment of ultimate losses or approximating the 90th percentile in terms of the projected distribution of outcomes on a diversified basis. This compares to a margin of $320 million over our mean best estimate at the end of 2010 or an 88 percentile for year-end of 2010, which is indicative of our robust reserving strategy.

We have provided further information on our reserve strength on a group basis and also the split between insurance and reinsurance on pages 13 and 14 of slide pack. You will see that our reserving approach is consistent and prudent. As we did last year, we intend to publish our loss triangles in the spring.

Turning now to guidance for 2012, as set out on page 15 of the slide pack. We anticipate our gross written premiums for the full-year to be $2.3 billion, plus or minus 5%, and we expect our ceded premiums to remain between 10 and 12% of gross earned premiums. We anticipate our full-year combined ratio to be in the range of 93 to 98%, including a cat load of $190 million, assuming normal loss experience weighted toward the second half of the year. As discussed previously, we are leaving the effective tax rates estimates unchanged in the rate of 8 to 12%.

That concludes my comments and our results for the quarter and full-year 2011 and also guidance for 2012, and with that, I’d like to hand the call back to Chris.

Chris O’Kane

Thanks, Richard. So in summary, if we review the January and ask ourselves what we can deduce, we cannot claim that hard market has arrived. Across Aspen’s entire book of business, rates were up on average 4% overall. But behind this line, some interesting pockets that are very attractive indeed, alongside some broader lines of business with preconditions for a better market to be met, but the catalyst, which is usually fear, has yet to show up.

Let’s spend a moment on the pockets of hardness first. In property, both insurance and reinsurance, a combination of model change in the U.S., and much-needed lessons being learned by the industry from the 2011 cat losses in the rest of the world is creating an underwriters market. We’ve not yet got to the stage where we can just name our price, but for most U.S. and Asian catastrophe exposures, we can expect to be paid properly for the risks we want to take.

For different reasons, a similar phenomenon exists in many lines of business that are affected by credit risk, financial risk, political risk and other forms of uncertainty. This means that our underwriters in line, such as surety, trade credit, political risks, financial institutions have (inaudible) and are well placed to drive rates upwards, which should achieve attractive results. If the rates do not meet our targets, we just have to wait for the right moment to grow, but we expect that we won’t wait too long and that we will see good money being made in these lines in the near future.

Taken together, these lines reflected either by natural hazards or by political or financial risk accounts for about 40% of the book of business that we want to write in 2012, and we feel pretty good about them. We don’t feel too bad about the rest of our 2012 book of business either. All over the place, we’re achieving single-digit percentage rate increases or we are at least holding our own. The market in general has finally woken up to the fact that the investment contribution to earnings is going to be quite muted for a few years to come. And consequently, as the market wants to offer its investors some hope of double-digit percentage returns and equity, it is going to have to push underwriting and price a lot harder.

It is still too early to crack open the dumper, but we are feeling highly encouraged about this. Side by side with our reinsurance business that has performed very well for us over many years now, we have an insurance business that is firing on all cylinders. Rupert Villers and Mario Vitale who run our insurance operation have teams of highly focused and extremely experienced underwriters who’re ready and willing not just to take advantage of the coming improvement in the market conditions, but also in many cases driving prices to acceptable and profitable levels. Aspen has the capital, the financial ratings, client relationships, and the product mix to do very well in 2012 and beyond.

Now I’d just like to thank you for your attention and Richard and I are ready to take any questions you may have.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Mike Zaremski from Credit Suisse.

Mike Zaremski - Credit Suisse

On Slide 12, I see on the slide pack, I see that the 1 in 100 and 250-year PMLs have come down. Is that in preparation of potentially taking advantage of better cap pricing 2012 as you alluded to in the prepared remarks?

Richard Houghton

Let me sort of deal with the more policy question you have there rather than the figures. Since last May or June, whenever it became clear what RMS was going to do, we felt that this was going to drive demand up, because most of our cadence were going to be sold at least higher than they thought and that would have an effects on price. But also the same effects enough the exposure that we had on books were going to be bigger (inaudible), so we did cut back. We cut back to stay within chances and we also cut back because we felt that pricing, it would be a slow-burning fuse. The pricing would be better in January than had been in July and that’s going to be the case. And we think that phenomena is going to go on. I think it’s kind of really happening on the reinsurance side. We’re beginning to see it happen in the insurance side. So, the way I see it is being situated is we’ve kept ourselves with the powder dry for April, especially May, June and July. We may well want to expand the amount of cat we assume. And we were talking here in particular I think about U.S. wind, the stuff that’s driven by RMS version 11, because that’s what drives the tail characteristics of our cat exposures.

Chris O’Kane

Can I just clarify one thing on the slides by the way, one addition to the slides that come out last night, stating our tolerances and there are actual many of our tolerances, can I just confirm the slides that you’ll see on our website absolutely clarify, 1 in 100 year tolerance is unchanged of 17.5% of total shareholders’ equity, and our 1 in 250 remains at 25% of total shareholder’s equity. So we still have capacity against both those tolerances. So apologies.

Mike Zaremski - Credit Suisse

Okay. I was looking at the slides from last night. Okay.

Chris O’Kane

Sorry about that.

Mike Zaremski - Credit Suisse

Okay. One follow-up, if I heard correctly, guidance on interest income, the run rate is in the $50 million range. That would be down 4 million from 4Q. Can you give us what assumptions underlie that guidance range?

Chris O’Kane

Yes. Also, I talked about the reinvestment rate of round about 1% at the moment. It’s just that gradual (inaudible) we’ve been seeing for all of 2011 extending into 2012. I just thought it might be useful to give you an indication of that number.

Operator

The next question comes from the line of Amit Kumar from Macquarie.

Amit Kumar - Macquarie

First of all, I wanted to say that, that is one of the most transparent disclosure on the cat losses that you have in the slide deck. And it would be great if other companies also followed similar level of disclosure. It’s very helpful. Just I guess going back to the discussion on exposure, your 1 in 100 has at the bottom, it said it’s a blend of RMS versus AIR. I’m just wondering if it was all RMS, how would that number change?

Chris O’Kane

I don’t have that figure at my fingertips, but I can tell you that like a lot of what we find and we studied RMS version 11 and adopted most of it, what we didn’t necessarily buy was their kind of the fusing of the long-term and the near-term frequency of storms. They are kind of telling us today that you can expect in the long-term the same sort of frequency as we’ve seen in the short-term, and we just found that scientifically speaking unconvincing. So we didn’t adopt that. I don’t believe that the difference in the two numbers is very material. I also believe that what we’ve done in blending the two models is exercise our best judgment and give us the most realistic view of exposures, which is the basis on which we like to run the business.

Amit Kumar - Macquarie

Okay. I guess the other question is, in the opening remarks, you mentioned that you will deploy capital if the return thresholds are met. First of all, what is your return threshold? And how much of your book renews at April 1?

Chris O’Kane

I mean, we don’t disclose and we don’t have a single return threshold for every single line of business. You have to think about things like, is it in early stage, in which case you’d want to look at the fully ramped-up figure level than the figure in the respective quarter. You want to look at what the stage of the cycle it is, in which case you might be pulling back which you might special to interim side, want to hold on to some exposure and the expectation price possibly changing. So there’s no single figure I can felt good, just remind me, the second part of your question again, please.

Amit Kumar - Macquarie

How much of your book renews at April 1?

Chris O’Kane

Usually around about 15 to 20%. I mean, if you say by April, you include some margin as well, because this coming quarter is that sort of figure. Maybe, maybe even a little more.

Amit Kumar - Macquarie

Okay. I guess final question, just on the Capital Management discussion, you talked about your outstanding buyback. But I guess just based on your set of strong pricing commentary, would it be fair to assume that one should not expect any Capital Management action as you continues to deploy capital at 4.1 and 7.1.

Chris O’Kane

What I think you should assume is we’ll take that question very, very seriously and that the board will look at this every time it meets and management will look at that more frequently. But you’re absolutely right. The balance of the two things. I mean where we are capitalized today is we’ve replenished our buffer. I think you’re familiar with the concept of the buffer, which we like to maintain, on top of the strict risk capital we need. And that’s been replenished. So I would say we’re pretty well capitalized and if earnings go well this year, we would move to overcapitalization. And unless we could put that to work, there would be share buybacks. But it is a turning market. And if it turns faster it might be better to put that capital to work. So I’m not giving you any prediction that there will be or won’t be a buyback this year, but I think it’s a subject we should return on future calls and we show you what we want to do to be as efficient as possible, blending the highest returns on the capital we have, with having the capital figure [advantage of] better markets and that’s the sort of line that we’re walking, always walk.

Amit Kumar - Macquarie

Got it. Final question, you mentioned multiyear policies and buyers for like multiyear policies. How much of your book would be, your existing book, would be multiyear and I guess how would that number change going forward, just based on your stance that you’re not going to offer multiyear policies going forward?

Chris O’Kane

Generally speaking, there are some multiyear policies that should be, construction projects, where the project is maybe going to take two, three years complete so naturally the policy matches that. And that’s okay. I don’t have a problem with that whether the good reasons but what I was talking about on the call is something different. It’s like, you know, they say in England, the first swallow is the sound of spring coming. Well, the end of the hard market is often signaled when the brokers tell their clients to go out and buy in a multiyear policy basis things that should only be done for 12 months. So what they are saying is let’s lock in these attractive prices and terms and conditions for as long as possible.

And then the last big turn, around about ‘99, 2000, 2001, there were loads of these things around, particularly in the property energy market and the energy liability market. It was delayed the turn of the market. We don’t sell those things anyway. I don’t like them. And it’s our policy not to sell multiyear, where the nature of exposure doesn’t demand multiyear. But the point I’m making is the whole industry is taking the same view these days. There is demand for multiyear from the brokers, from the clients, but there aren’t any sellers that we consider actually giving instrument, which just says as a bit of underwriting result there. It’s something to put in the plus side, if you’re thinking about is the market accelerated, there is going to be an acceleration towards the market change.

Operator

The next question comes from the line of Sarah DeWitt from Barclays Capital.

Sarah DeWitt - Barclays Capital

Just following up on the question about share buybacks, what level of rate increases would you need to see to deploy all the excess capital you generate back into the business versus share buybacks?

Chris O’Kane

I think, Sarah, your question is sort of positive. If I could give you a number and I can’t give you a number because the level of increase is different from different lines of business and demand for the product might vary and so on. How can I help? I think you would have to be more optimistic about the market than I’m, and I’m reasonably optimistic. But you would have to be more optimistic than that to believe that by the end of this year we would not be overcapitalized and wanting to buy back shares, given normal loss experience and given the sort of changes that I’m expecting. So I think it’s not as precise as I think you’re hoping for, but it’s probably the best we can do.

Sarah DeWitt - Barclays Capital

Okay. No, that’s helpful.

Richard Houghton

It would always be a culmination of affecting future pricing opportunities and current financial performance of the two have to fit together.

Sarah DeWitt - Barclays Capital

Okay. That’s helpful. And then in your comments, I believe you said you expect mid-year U.S. property insurance rates to be up double-digits. Do you have a view on U.S. property reinsurance rates at mid at this point?

Chris O’Kane

I think what we said on the call is at 1-1, we saw on the reinsurance side 10 to 15% more rates in the U.S. and on the primary side; it was good single-digits, 5 to 10. I didn’t offer a prediction on the U.S. rates in the middle of the year, but I will now give you my view was in the call. This RMS version 11 thing is finally beginning to bite. And I’m sort of amazed by this because they released it in March of last year. And it’s pretty much obvious what it was going to mean. But even in the last week or two, we’ve had clients coming through Bermuda and saying, RMS 11 means our exposures are up. We might need to buy more cover; we do need to buy more cover. And they’re trying to buy more cover in the market that’s fundamentally haven’t got more capital available. There’s a little bit of capital, but it’s not enough to offset the increased demand. So, we certainly would expect on the cat side 10 or 15% more and maybe that could even accelerate more in the sort of 15 to 25 area as the year goes on.

On the primary side, of course the prices you’re looking at have not just for the wind risk, the fire loss the percentages are going to be lower. But we’d expect to see them getting into the low double-digits as the year goes on. I mean, that’s partly our hope and partly an expectation and it’s not a firm prediction. But I should say, our view is for the model change effective property lines, the best is yet to come. It’s going to be April to July this year, I think.

Operator

The next question comes from the line of Vinay Misquith from Evercore Partners.

Vinay Misquith - Evercore Partners

The first question is on the guidance. Just curious as to whether it includes some amount of favorable result development? And if it does not, it just seems that the guidance implies a meaningful margin improvement in ‘12 versus ‘11. And so if you could run us through the math with that, that would be helpful.

Richard Houghton

Yes, certainly, Vinay. It’s Richard here. We don’t include any expected assumption of the reserve releases, or, indeed, strengthening in our guidance for 2012 or indeed any year. As regards the combined ratio, I think, it’s actually the same as we had for last year. So it’s not really indicating any worsening or general improvement. And as Chris said, the story we’ve got across the whole book is some signs of light and some improvements coming through and in some ways a little bit slower than we think it should be. So a mixed picture, but it’s actually really quite similar to where we were this time last year.

Vinay Misquith - Evercore Partners

Okay. Fair enough. The second question is on the cats guidance. That was up slightly this year versus last year. Was it just because of premium growth or were you including the Costa Concordia loss within your numbers?

Richard Houghton

Concordia is not included. There is a little bit of premium growth, there is a little bit of RMS 11 in there. I think last year we had 170 million for cat loss, and this year we had 190, so not that much of a difference, but a slight increase.

Chris O’Kane

Vinay, I mean, I would say, if not all of it, then most of it is actually model change, because the whole point of our version 11 is telling you, for the same exposure, the same dollars at risk, you’re likely to lose more money. That’s the message of it in a nutshell. So, naturally, you should expect everyone’s loss expectations to go up, if they are using RMS 11 and they were previously using 10 and they are maintaining their exposures, if it’s not going up it’s because of reduced exposure.

Richard Houghton

And Vinay, just for interest, we wouldn’t actually include something like the Concordia disaster in our cat load anyway. There’s a natural catastrophe events rather than an event such as a ship wreck.

Vinay Misquith - Evercore Partners

All right. So then for the first quarter, we should expect maybe a higher loss because of the Costa Concordia, would that be fair?

Richard Houghton

No, it wouldn’t. We build an expectation of large losses at every single quarter. I’m going to wait and see what happened in respect of our loss, I think Chris said that what was the maximum numbers might be and we have numbers we will come in within those parameters.

Vinay Misquith - Evercore Partners

Okay, that’s great. And then one last question, just the growth in the other property reinsurance that was quite meaningful this quarter. Just curious whether that was because of higher prices or higher exposures?

Richard Houghton

Other property reinsurance, just looking at the detail for the quarter, sorry, Vinay, we are just trying to dig out the detail here. Do you have another question while we look it up?

Vinay Misquith - Evercore Partners

No, I think I’m good.

Richard Houghton

Okay.

Vinay Misquith - Evercore Partners

Yes. Actually, also the growth in the primary property insurance, (inaudible) pretty meaningful this quarter?

Chris O’Kane

Well, Vinay, while Richard is figuring out that, (inaudible) On the insurance side, I mentioned on the call we wrote quite a significant program incepted in September. It’s a northeast based writer of condos and the premium when we expected to come fully by $100 million and what you’re seeing there is basically that coming on-stream in September. So it’s a fairly, it’s a one-off, it’s not a one-off. I mean we would like to add more program business, but it’s a particular deal that is leading to the growth in property. It’s not the general open market account.

Richard Houghton

Yes, Vinay, I look to the other property line. The growth is coming in our pro rata accounts. It’s up a little bit relative to what we had expected and up on the previous year, but I don’t think there’s any particular magic behind that that I want to draw your attention to.

Operator

Your next question comes from the line of Josh Shanker from Deutsche Bank.

Josh Shanker - Deutsche Bank

In terms of the guidance on premium 2.3 billion plus or minus 5% that is actually kind of wide birth given that January 1 has already occurred. Are we really sort of saying 2.3 within a margin of error, or is there one scenario where you think that your premium line could be plus 9 for the year and another one could be flat to modestly negative?

Richard Houghton

I think, I think the likely outcome there Josh is probably a little biased to the upside rather than the downside of a range, but behind that lies an assumption about the direction the market is going in. We believe it’s a justified assumption, so what I guess you’re seeing, you know the history. We’ve invested our U.S. insurance franchise. We’ve hired teams. We’ve said to you, and some of those teams go back two or three years now. We said we’re going to keep them quiet, not doing very much until we want them to do more, and in some areas, we’re wanting them to do more, and in some areas, we’re wanting them to do more. We think we’re wanting to do more this year. So that would say that investment that Aspen made in its future, over the last couple of years, is going to begin bearing fruit this year 2012. It’s going to be modest. It’s maybe a couple of hundred million dollars of additional premium revenues, but, you know, that’s nice. And as the market goes further, that’s going to be a much bigger and more significant, more differentiating contribution in 2013 and ‘14.

Josh Shanker - Deutsche Bank

This sounds to me like you’re indicating that the variable component is the insurance portion.

Richard Houghton

Most of the upside we believe is there, that’s right. And the other factor, of course, is on the cat property. We are expecting a better time and some of the increase is attributable to that.

Josh Shanker - Deutsche Bank

And in terms of this thing, you did get a decent amount of reinstatement premium in the prior year. So actually the upside that number is excluding reinstatement, or is it more upside to numbers than just the apples-to-apples gross numbers?

Chris O’Kane

I think what we said, Josh, was if you take out the reinstatement premiums from the 2011 number, we’re variably flat on 2010.

Josh Shanker - Deutsche Bank

Yes, but I’m saying that 2012, your comps are with reinstatements. So actually 2011 is inflated numbers compared to where 2012 will be. It’s actually difficult comps per se.

Chris O’Kane

It is slightly difficult, because what you’re going to trade off is the reinstatement premiums in 2011 versus an expectation of some higher rates coming through in 2012. So I agree, it is difficult, but you should be able to get more color from us when we go through our Q1 results and you can see what happened at 1-1.

Operator

The next question comes from the line of Dan Farrell with Sterne Agee.

Dan Farrell - Sterne Agee

Just had a question on a combined ratio guidance of the ‘93 and ‘97. Could you talk about the trend that you’d expect to see on accident year ex-cat loss ratio, given that there’s mix change taking place in the business and also on the expense ratio side? That’s underlying that guidance.

Chris O’Kane

Well, I’ll certainly cover on the accident year, because it’s very exactly the same as the calendar year because we don’t make any allowance for reserve releases or development, and we haven’t actually broken down any specific guidance within expense ratio.

Dan Farrell - Sterne Agee

Can you at least comment generally on some of the mix shift that’s taking place and how you think that might affect loss trend?

Richard Houghton

Yes, certainly. I can comment on the Q4 G&A expense ratio at 16%, which is slightly higher than you would expect as a run rate. So I think if you look at the full-year, if you’re looking number one, about 15%, 2011 included some quite significant build-out expenses in the U.S. We hope the premium’s going to start coming through in a significant way for the U.S. in 2012 and improve that position. Because I think if you take that 15% number, that’s a reasonable start for 2012.

Chris O’Kane

Let me see if I could just add a little bit to that, maybe more color than numbers to feed into the formula. But if I look at reinsurance first, on the property re side, we’re expecting, as we said already, better data in the U.S. and in partly international trend, also that is sometimes dramatically better. I said on the call we’re looking for up to double the price, which happens as quick of course, the rate on the line is low. So that’s not a big achievement, as it sounds. But all things told, to write more in property reinsurance seems like a good thing to do, the right thing to do, and the sort of thing that we’re going to do.

Casualty re, on the other hand it’s not getting worse; it’s getting a little better, but we’re not so excited there. There is some good development on the international side of ours, and it’s in four operations. But in general, we’re not looking to a lot more in casualty re. And then the specialty re piece, and that’s where we put the credits and the agricultural and the marine and the aviation insurance, those are lumpy. Currently, we like credit, because there is a lot of fear in the world. And we think we’ve got some clients who are doing a nice job, and we’re pretty happy to back them as reinsurers. But the marine stuff, following Costa Concordia, following some maybe cargo losses out of Thailand, we could do a bit better there. So specialty re could be up a little bit.

However, it’s on the insurance side of the house that we think the change is taking place, and that’s a long-term change. And what we’ve really done, and I’ve said it before, we hired a lot of people to do a lot of interesting and diverse things. The one we talk about most is kidnap and ransom. Two years ago, I think, it was right at zero. This year, we’ve been expecting 50, $60 million, maybe more of premium in that area. Political risk and financial risk is also a contributor. And this is, kind of, changing our business mix such that whereas, over the last few years, insurance has been a little smaller than reinsurance in written premium terms. Going forward, I think, insurance is going to be a little bigger than reinsurance in written premiums terms.

If something happens in the marketplace to spike rates in one place rather than other, we’re going to change that again. There is no ambition to make one bigger than the other. The ambition is to put a capital where the best return is. But just currently the way we’re set up and with the worldwide distribution we have and the way we see prices changing, we think it makes sense to the slightly bigger bet on the insurance side than the reinsurance side, although we quite like a lot of what’s going on in the reinsurance, and I said already particularly in the property and the specialty areas. So does that help?

Dan Farrell - Sterne Agee

That’s very helpful. And then just one other question on the U.S. insurance business, obviously it’s undergone a fair amount of transformation over the past year. Seems like you corrected some of the profitability on the loss side. I’m wondering if you could talk about the growth trajectory you think you need there and, sort of, where expense ratio sits. You put a lot of investments in. What kind of a scale do you need to get there to get the expenses correct there as well?

Chris O’Kane

That, that’s absolutely the right question about the U.S. I think, you know, 2011 showed pretty decent loss ratios. On the reserving side, we thought about some releases. We decided not to, but we’re pretty comfortable where we are with the earnings. So the issue is the expense base, what size of that, what size of the business need to be to match the expense base and the answer is more like about a $500 million book of business and that’s quite a bit more than we have at the moment. So for 2012, maybe 2013, I’m hoping for and expecting some pretty decent underwriting performance, good loss ratios, but probably it isn’t yet quite at the stage where the scale is likely to make the loss, the expense ratio competitive. And that’s just a stage we’re going through and I think the rest of the business, that’s the international insurance, and the reinsurance visit overall, are big enough to take that little bit of expense drive for a year or so and still produce pretty decent earnings in 2012 and 2013.

And then I think in ‘13, ‘14 and beyond, you’re going to see U.S. making a real contribution to the overall earnings of the organization. If we’re right about the timing of the market change, that could be a bit worse or could be a bit better. If it’s better than we’re breaking in, then maybe we’re going to get that expense rate under control in 2012, because we’re going to write more premiums, but more likely, it’s 2013.

Operator

The next question comes from the line of Brian Meredith with UBS.

Brian Meredith - UBS

Couple of questions here for you. First one, Chris, could you talk a little bit about loss trend and what you’re seeing in loss trend, and are you achieving pricing right now, kind of generally that’s in excess of loss trend?

Chris O’Kane

You know there is weird thing I think you noticed Brian. The loss trend is very good. I mean, there isn’t much evidence of price inflation consequently, the prices, if I just look at if you like the and correctly manifest or loss trends in the last bunch of quarters, all the price looks like it improved in margin. But, you know, I’d love to be roast-tinted spectacle optimist and believe that the loss trend, of course I can’t believe that. I believe it has to re-manifest itself, in which case there’s going to be some catching up in loss trend and that will come from some negative court decisions or some legal change or maybe out of the recession to just more claims coming from that. So if we kind of look for a more holistic and long-term way at loss trends, then I would say the price increases that we’re getting and putting through on the casualty lines are just fractionally ahead of what we anticipate in the long-term loss trend. We try to look at loss trend by jurisdiction and by line of business. There is no point in applying a single number to the whole world and so, you know, you’re going to be a bit more worried about, let’s say, medical costs in the U.S. than you are about the employer’s liability in the UK, given the state of the UK economy and politics, but on a blended basis, I think we’re holding our own plus just getting a little tiny bit ahead of it in the long-term.

Brian Meredith - UBS

Great. So I assume that your guidance is assuming a normalized loss trend, then?

Chris O’Kane

Yes, it is.

Brian Meredith - UBS

Okay. So if the trend stays where it is right now in theory, you should have better kind of underlying combined ratios?

Chris O’Kane

There could be lumpiness in our fortunes quarter-by-quarter, yes.

Brian Meredith - UBS

Okay, great. And then second question, given all of the losses that we’ve seen, Thai flood, particularly the impact it’s had on Lloyds, I’m wondering if you’re seeing any change in the competitive landscape there, any opportunities.

Chris O’Kane

It’s a little bit early to say because a lot of our Asian business was used in April and it’s going to be really this month and next month that we work on it. But we are seeing some changes in behavior already. You know, I think the time is very, very interesting. I think it’s a kind of wakeup call and as I was saying on the call, you have these industrial parks throughout Asia, which are economically very efficient, but they are built very rapidly without great risk management, and Thailand has shown us what we can do. So I think everyone in the industry is saying well, how many of those are there in Indonesia and Malaysia and China and India and Taiwan, what have you, and have the industrial fire insurers really got their arms around those exposures. My view is perhaps the insurers have a bit more work to do on that and that makes the reinsurance a bit risk averse.

So I can tell you in our book we’re going to be very, very tough on this stuff. We cut our exposures in Asia already. We expect to write a bit more if we get the prices that we hope to get and if we don’t, we won’t be replacing those exposures, and I don’t think we’re the only people talking that way. And I certainly at 1-1, I know there is some Asian business at 1-1 that’s discussed. We saw how can I put it, a much more consulate return from clients who initially may be starting negotiation aggressively and then came back to bit more meekly and said, okay, that’s what you really want, we can have it, as long as we can have your capital, please. So I’m somewhat encouraged about Asia. I can tell you more in about two months time.

Brian Meredith - UBS

Great. And then one last quick question here. Your capacity to write Florida cat reinsurance business, in the event the market’s firming up, sounds like there’s going to be some supply-demand imbalance there at 6-1?

Chris O’Kane

The simplest measure of that is we wouldn’t want to go at the 100 year level of about 17.5% of shareholder’s equity and we’re currently about 15.5, so what’s that. It’s like about a 10 to 15% more we could do. If we did that, I’d regard it as sort of full, but there’s a little bit of head room there. We don’t have to do it. If the price is attractive, we will. And if the prices don’t move enough, then we’ll just continue to keep a little safety margin in there.

Operator

The next question comes from the line of Geoff Dancey with Cutler Capital.

Geoff Dancey - Cutler Capital

I just have a couple questions for you about your investment portfolio. I’m wondering about the equity securities. It looks like market value is just about 180 million. I believe you said it was dividend paying equities. Is this going to be a part of the market that you are focused on with low yields? Is this part of your strategy going forward or do you expect to get out of these equities at some point?

Richard Houghton

We got into the equities, I think, in Q2 2011. I will see it as a small, but interesting, part of the portfolio and as a, sort of, measured response to what’s available to us right now. They are very high quality as you can probably see from the improvement versus our original investment point. I can see that as and when conditions allow, we may well put some more money into equities. I wouldn’t expect it ever to be a major part of our portfolio. We have a sort of internal measure around about 90% of our portfolio being in high quality fixed income, with the capacity to think about alternative investments within that remaining 10%. I think this is around about 2.5% to the portfolio. So it’s interesting, it works for us in the current environment, and it’s something we will continue to look out through the year as we see how our financial performance progresses.

Geoff Dancey - Cutler Capital

So, could we see this growing to 5, 6, 7%?

Richard Houghton

I think that’s unlikely right now. But as we all are doing, we are constantly looking at the asset classes, which are available to us, and what’s the volatility they are currently demonstrating. One of the reasons why we haven’t weighed in, in any further material way, is just the amount of uncertainty both in the U.S. and, most certainly, in Europe right now. So it seems the right thing to do for our shareholders to stay on the edge of the pool rather than diving in right now.

Operator

There are no further questions at this time.

Chris O’Kane

Okay. Well, thanks, everyone, for your time and attention this morning. Have a good day. Good-bye.

Operator

This concludes today’s conference call. You may now disconnect.

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